liberate america
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Participating OrganizationsBusiness Alliance for Local Living Economies
Capital Institute
Democracy Collaborative
Green America
Institute for Policy Studies
Living Economies Forum
New Economy Network
New Rules Project
Public Banking Institute
RSF Social Finance
YES! Magazine
How toLiberate
Americafrom
Wall StreetRulex
A Report from the New Economy Working Group
http://www.neweconomyworkinggroup.org/http://www.neweconomyworkinggroup.org/ -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
How to
Liberate Americafrom Wall Street Rule
AReportfr
omtheNewEconomyWorkingGroup
Primary Author: Daid Korten
Contributors: Alissa Barron, Gar Alperoitz, Sarah Anderson, Ellen Brown,John Caanagh, Chuck Collins, John Fullerton, Jared Gardner,
Alisa Graitz, William Greider, Fran Korten, Michelle Long, Stacy Mitchell, Doug Pibel,Don Shaffer, Michael Shuman, Sarah Stranahan, Gus Speth, and Sarah an Gelder
July 2011
New EconomyW O R K I N G G R O U P
Equitable Economies for a Living Earth
LivingEconomes
Forum
Participating Organizations
Business Alliance for Local Living Economies
Capital Institute
Democracy Collaborative
Green America
Institute for Policy Studies
Living Economies Forum
New Economy NetworkNew Rules Project
Public Banking Institute
RSF Social Finance
YES! Magazine
Edited by Doug Pibel. Designed byTracy Loeffelholz Dunn.
Coer photo by Snke Hartmann
This document is proided for educational purposes at no charge to the reader. Reproduction is encouraged in all forms,ecept that reproduction for sale or for any for-prot use is epressly forbidden.
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yworkinggroup.org/http://www.neweconomyworkinggroup.org/http://www.neweconomyworkinggroup.org/http://www.neweconomyworkinggroup.org/ 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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
ACKNOWLEDGEMENTS
This report addresses issues and options largely ignored by the current public conersation
on nancial reform. It confronts the need to not simply or reform Wall Street but rather
to create a Main Street-based money and banking system accountable to local communities
and responsie to their needs. The intention is to redirect the conersation to deeper issues
and options that the establishment has so far kept off the table. The essential issues are
straightforward matters of alues and power readily understood by most eeryoneas thisreport intends to demonstrate.
This report is prepared and issued by the New Economy Working Group (NEWGroup), an
informal alliance coordinated by the Institute for Policy Studies (IPS) and comprised of IPS,
YES! Magazine, the Business Alliance for Local Liing Economies (BALLE), and the Li-
ing Economies Forum, plus indiidual members Gar Alperoitz, Stacy Mitchell, and Gus
Speth. It is co-chaired by John Caanagh and Daid Korten, and coordinated by Noel Ortega.
NEWGroups mission is to articulate and popularize a bold ision and implementing strat-
egy for a New Economy that works for all of Earths people and the liing systems on which
their well-being depends. See the Appendi for NEWGroups statement on what we mean by
a New Economy.
This report grows out of an ongoing New Economy Transitions discussion series organized
by NEWGroup and the New Economy Networkan informal alliance of indiiduals and or-
ganizations coordinated by Sarah Stranahan.
Many indiiduals and organizations played critical roles and contributed important ideas to
the etended conersation on which this report is based. Indiiduals who made signicant
contributions by way of concepts, proposals, and feedback include: Alissa Barron, Gar Alp-
eroitz, Sarah Anderson, Heather Booth, Ellen Brown, John Caanagh, Chuck Collins, John
Fullerton, Jared Gardner, William Greider, Fran Korten, Michelle Long, Stacy Mitchell, Doug
Pibel, Don Shaffer, Michael Shuman, Sarah Stranahan, Gus Speth, and Sarah an Gelder.
Participating organizations in addition to the New Economy Working Group partners include:
Capital Institute, Democracy Collaboratie, New Economy Network, New Rules Project of theInstitute for Local Self-Reliance, and Public Banking Institute, and RSF Social Finance.
All of these indiiduals and organizations hae reiewed the nal report. They do not neces-
sarily endorse all of the reports premises, conclusions, and recommendations. All, howeer,
agree on the need for a liely public conersation on the issues and options presented. All
are committed to adancing that conersation.
Final responsibility for the reports content, including errors and omissions, rests with
Daid Korten as the primary author. Korten is co-chair of the New Economy Working Group,
co-founder and board chair ofYES! Magazine, founder and president of the Liing Econo-
mies Forum, and a founding board member of the Business Alliance for Local Liing Econo-
mies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real
Wealth, The Great Turning: From Empire to Earth Community, and the international best
seller When Corporations Rule the World. He has MBA and Ph.D. degrees from the Stanford
Business School. In his earlier career he sered as a captain in the U.S. Air Force, a Harard
Business School professor, a Ford Foundation project specialist, and Asia regional adiser
on deelopment management to the U.S. Agency for International Deelopment.
http://neweconomyworkinggroup.org/http://www.ips-dc.org/http://www.yesmagazine.org/http://www.livingeconomies.org/http://livingeconomiesforum.org/http://livingeconomiesforum.org/http://livingeconomiesforum.org/davids-storyhttp://neweconomyworkinggroup.org/http://www.yesmagazine.org/http://livingeconomiesforum.org/http://livingeconomiesforum.org/http://www.livingeconomies.org/http://www.livingeconomies.org/http://livingeconomiesforum.org/http://livingeconomiesforum.org/http://www.yesmagazine.org/http://neweconomyworkinggroup.org/http://livingeconomiesforum.org/davids-storyhttp://livingeconomiesforum.org/http://livingeconomiesforum.org/http://www.livingeconomies.org/http://www.yesmagazine.org/http://www.ips-dc.org/http://neweconomyworkinggroup.org/ -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
RECENT QOTATONS
In policy terms, the success of the nancial sector is not an end in itself,but a means to an endwhich is to support the itality of the real economy
and the lielihood of the American people. What really matters to the life of our nation isenabling entrepreneurs to build new businesses that create more well-paying jobs, and
enabling families to put a roof oer their heads and educate their children.
Sheila Bair, FDiC Chair, MarCh 16, 2011
Financial systems are important serants of the economy, but poor masters.
Martin WolF, FinanCialtiMeSChieFeConoMiCSCoMMentator, april20, 2010
Of all the many ways of organizing banking, the worst is the one we hae today.
Mervyn King, governor, BanKoF englanD, oCtoBer 25, 2010
I dont think this is just a nancial panic; I beliee that it represents the failure of a wholemodel of banking, of an oergrown nancial sector that did more harm than good.
paulKrugMan, the MarKetMyStique, neW yorK tiMeS, MarCh 26, 2009
Bank of America protestBoston, 2010
Photo by Aaron Donoan
http://www.fdic.gov/news/news/speeches/chairman/spmar1611.htmlhttp://www.fdic.gov/news/news/speeches/chairman/spmar1611.htmlhttp://www.fdic.gov/news/news/speeches/chairman/spmar1611.htmlhttp://www.fdic.gov/news/news/speeches/chairman/spmar1611.htmlhttp://motherjones.com/kevin-drum/2010/04/quote-day-restructuring-financehttp://motherjones.com/kevin-drum/2010/04/quote-day-restructuring-financehttp://motherjones.com/kevin-drum/2010/04/quote-day-restructuring-financehttp://motherjones.com/kevin-drum/2010/04/quote-day-restructuring-financehttp://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdfhttp://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdfhttp://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdfhttp://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdfhttp://www.nytimes.com/2009/03/27/opinion/27krugman.htmlhttp://www.nytimes.com/2009/03/27/opinion/27krugman.htmlhttp://www.nytimes.com/2009/03/27/opinion/27krugman.htmlhttp://www.nytimes.com/2009/03/27/opinion/27krugman.htmlhttp://www.nytimes.com/2009/03/27/opinion/27krugman.htmlhttp://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdfhttp://motherjones.com/kevin-drum/2010/04/quote-day-restructuring-financehttp://www.fdic.gov/news/news/speeches/chairman/spmar1611.html -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
ACKNOWLEDGEMENTS 3
ExECUTIvE SUMMARY 6
How to Liberate America From Wall Street Rule 8
Finance for a 21st Century America 10
Money as a System of Power 12
The Case for System Redesign 14
A Well-Functioning Money System 14
A Proen Model 15
Wall Street Takeover 16
A Bipartisan Project 16
At the Epense of Community Banking 17
Subsidies for a Doomsday Machine 18
Moral Failure 18
Blaming the victim 19
Bad Science 19
Flawed Legal Doctrine 20
The Purpose of Business 21
Money System Design 22
Basic Market Principles 22
Money Creation in the Current System 23
Agenda for a Main Street Money System 24
1. Rebuild a National System of Community-Based
and Accountable Financial Institutions 25
2. Create a State Partnership Bank in Each of the 50 States 28
3. Restructure the Federal Resere to Limit Its Function
to Money Supply Management and Subject it to Federal
Oersight and Public Accountability 29
4. Create A Federal Recoery and Reconstruction Bank 31
5. Rewrite International Trade and Inestment Rules
to Secure National Ownership, Self-reliance, and
Self-determination 32
6. Implement Measures to Secure the Integrity
of the Money/Banking/Finance System 35
Citizen Action 36
APPENDIx:
Navigating the Transition to a New Economy 39
TABLE OF CONTENTS
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
EXECTVE SMMARY
I
n 2008, Wall Street plunged the U.S. econ-
omy into the worst crisis since the Great
Depression. Wall Street receied a gener-
ous public bailout and quickly recoered.
Main Street continues to languish. Politi-cians and pundits rarely inquire into the rea-
sons for the disparity. Doing so would epose
the reality that the United States is ruled as a
plutocracy, not a democracy, and would focus
citizen anger on the structure of the institution-
al system that gies Wall Street bankers their
power.
The 2008 nancial crash was a direct and
ineitable consequence of a social engineering
eperiment conducted by Wall Street intereststhat allowed Wall Street nancial institutions to
consolidate their control of the creation and al-
location of money beyond the reach of public ac-
countability. The priority of the money system
shifted from funding real inestment for building
community wealth to funding nancial games
designed solely to enrich Wall Street without the
burden of producing anything of real alue.
The proper function of money is to facilitate
the sustainable and equitable utilization of re-sources to fulll the needs of people, commu-
nities, and nature. This calls for a community-
based and democratically accountable system
of money, banking, and nance that functions
to create and allocate money as a well-regulated
public utility.
Such a system would be remarkably similar
to the one that nanced the United States ictory
in World War II, produced an unprecedented pe-
riod of economic stability and prosperity, made
America the worlds industrial powerhouse, and
created the American middle classa system
that was working well until Wall Street launched
its nancial modernization eperiment.
Wall Street interests mobilized in the 1970s
to adance a host of policy initiaties that led to
the erosion of the middle class, an etreme con-
centration of wealth, a costly nancial collapse
high rates of unemployment, bankruptcy, and
housing foreclosure, accelerating enironmentasystems failure, and the hollowing out of U.S
industrial, technological, and research capacity
Wall Street proted all along the way and declared
its social engineering eperiment a great success
This report presents a si-part agenda fo
ending Wall Streets disastrous eperiment and
creating a community-based, publicly account-
able money and banking system responsie to
the needs and opportunities of the United States
in the 21st century.
1
Reverse the process of banking consolidation
and build a national system of community-
based, community-accountable nancial in-
stitutions devoted to building community
wealth. Break up the megabanks and imple-
ment ta and regulatory policies that faor ap-
propriate-scale community nancial institutionsand, in particular, community nancial institu-
tions organized as cooperaties or owned by non-
prots deoted to community wealth building.
2
Create a State Partnership Bank in each of
the 50 states to sere as a depository for state
nancial assets. State banks can keep these
funds circulating in state by partnering with
community deelopment nancial institutions
on loans to local home buyers and locally owned
enterprises engaged in construction, agricul-
ture, industry, and commerce.
3
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
3
Restructure the Federal Reserve to limit its
responsibility to managing the money sup-
ply, subject it to federal oversight and pub-
lic accountability, and require that all newly
created funds be applied to funding public in-
frastructure. Assign responsibility for the regu-
lation of banks and so called shadow banking
institutions to specialized regulatory agencies.
4
Create a Federal Recovery and Reconstruc-
tion Bank to nance critical green infrastruc-ture projects designated by Congress. It would
be funded with the money that the Federal Re-
sere creates when it determines a need to e-
pand the money supply. Rather than introducing
that money into the economy through Wall Street
banks, it would instead be introduced through
the Federal Recoery and Reconstruction Bank.
5
Rewrite international trade and investment
rules to secure national ownership, self-reli-
ance, and self-determination. Bring interna-
tional rules into alignment with the foundational
assumptions of trade theory that the ownership of
productie assets belongs to citizens of the country
in which they are located and that trade between
nations is balanced. Hold corporations operating
in multiple countries accountable for compliance
with the laws of each country of operation.
6
Implement appropriate regulatory and scal
measures to secure the integrity of nancial
markets and the money/banking system
Such measures properly faor productie in-
estment and render nancial speculation and
other unproductie nancial games illegal and
unprotable.
Critics will argue that the proposed actions
represent unwarranted goernmental interfer
ence in the market. In reality, Wall Street insti-
tutions are themseles creations of goernment
and would not eist without goernmental in-
terention. virtually eery major Wall Street -
nancial institution is a corporation created by
a goernment-issued charter etending rights
and priileges not aailable to an indiidual The money that fuels Wall Streets speculatie
frenzies originates with the Federal Resere, a
creation of goernment. Most Wall Street cor-
porations would hae gone out of business in
the nancial crash of 2008 if not for a massie
bailout from the U.S. Treasury and the Federa
Resere.
It is fully appropriate, indeed mandatory, for
goernment to interene to hold to account in-
stitutions it bears responsibility for creating andsecuring against their own folly. The Federa
goernments practice of creating, subsidizing
and protecting priate institutions that sere
no alid public purpose and refuse to accept re-
sponsibility for the public consequences of their
actions must end.
Leadership in implementing the proposed
agenda will depend on citizens acting in concer
with their state and local goernments to adance
public understanding of the issues raised heremoing their business from Wall Street to Main
Street nancial institutions, promoting coopera
tie or nonprot ownership of nancial institu
tions, and adocating implementing legislation.
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Beginning in the 1970s, Wall Street
interests carried out a bold social
engineering eperiment in market
deregulation in the guise of pro-
moting market freedom and nan-
cial modernization. This eperiment remoed
most restraints on the concentration of corpo-
rate power and placed it beyond the reach of
democratic public accountability.
As a consequence, the banking system to
which We the People hae yielded the power to
create and allocate money is now controlled by a
small group of bankers, nanciers, and traders
accountable only to themseles and dedicated
only to maimizing their personal nancial re-
turn.
The ecesses of these largely unregulated
and unaccountable institutions resulted in thenancial crash of 2008 and plunged the United
States and the world into the worst economic
crisis since the Great Depression of the 1930s.
The U.S. Congress responded almost instantly
with some $700 billion to be quickly disbursed
by the U.S. Treasury to bail out the Wall Street
institutions responsible for the crash. The Main
Street economy receied $787 billion in stimu-
lus funding to be doled out oer seeral years.
It might seem that Main Street got the great-er support. Howeer, while Wall Street mobilized
its media PR machine to focus public anger on
the Main Street stimulus funding, the Feder-
al Resere was implementing a far larger Wall
Street bailout operation. An audit ordered by
the U.S. Congress produced a report released in
late 2010 documenting Federal Resere commit-
ments of $12.3 trillion in emergency funding for
Wall Street in the form of low or no interest loans
and the purchase or guarantee of distressed se-
curitiesall in addition to the Congressionally
authorized bailout.
The Fed proided nothing for the Main Street
economy on which the ast majority of people
depend for employment and the necessities of
daily life.
The Federal Resere funding brought th
Wall Street bailout total to $13 trillion. Yet Wall
Street itself produces nothing of alue and has
all but forsaken the primary purpose of a nan-
cial sectorto support the efcient, generatie
production and distribution of real goods and
serices.Wall Street took the bailout money, subse-
quently reported record prots, and rewarded it-
self with record bonuses. On April 26, 2011 the
Standard & Poors inde of 500 corporations hit
1,347.24, its highest leel since June 17, 2008
which was seeral months before the meltdown
The Main Street eperience is quite a dif
ferent matter. A primary rationale for the Wal
Street bailout was to get money owing to the
people and businesses that produce and distrib-ute real goods and serices to get them working
again. That is not what happened.
As of May 2011 some 13.9 million Ameri-
cans were formally classied as unemployed
and an additional 800,000 had gien up looking
HOW TO LBERATE AMERCA FROM WALL STREET RLE
http://www.bloomberg.com/news/2011-04-10/global-corporate-profits-rising-to-record-before-japan-quake-curbs-supply.htmlhttp://www.bloomberg.com/news/2011-04-26/u-s-stock-index-futures-advance-johnson-controls-gains.htmlhttp://www.bloomberg.com/news/2011-04-26/u-s-stock-index-futures-advance-johnson-controls-gains.htmlhttp://www.ncsl.org/?tabid=13307http://www.ncsl.org/?tabid=13307http://www.ncsl.org/?tabid=13307http://www.ncsl.org/?tabid=13307http://www.bloomberg.com/news/2011-04-26/u-s-stock-index-futures-advance-johnson-controls-gains.htmlhttp://www.bloomberg.com/news/2011-04-26/u-s-stock-index-futures-advance-johnson-controls-gains.htmlhttp://www.bloomberg.com/news/2011-04-10/global-corporate-profits-rising-to-record-before-japan-quake-curbs-supply.html -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
for work. Gallup estimated that 19.2 percent ofthose Americans who wanted work were under-
employed. More than 656,000 Americanswere
homeless in 2009. Home foreclosures continue:
In May 2011, banks and lenders held 872,000
foreclosed homes and another million were in
the foreclosure process. Estimates of the num-
ber of food insecure people in the United States
run to more than 50 million. Eperts estimate
that $3 trillion would repair and rebuild Amer-
icas crumbling physical infrastructure, a smallportion of the $13 trillion the Fed and Treasury
showered on Wall Street.
The money system demonstrated its ability
to instantly generate whateer amount of money
was needed to restore Wall Street prots and bo-
nuses. It failed, howeer, to come up with the
money needed by the real-wealth Main Street
economy to put people to work proiding needed
goods and serices.
When skilled workers are unemployed andneeds essential to the future of our children are
unmet solely because of a lack of money, we
hae a defectie money system in serious need
of radical redesign.
A more functional money system would hae
directed the money that went to Wall Street tofunding good jobs rebuilding Americas physi-
cal infrastructure, retrotting our buildings for
energy and water conseration, and conerting
to renewable energy. We would now be eperi-
encing an economic boom, reducing our nation-
al dependence on foreign oil and enironmen
tally deastating coal and gas mining, reducing
household epenses for energy and transporta
tion, and securing the future of our children by
reducing the enironmental stress on Earth.The dysfunctional Wall Street money system
did none of this and those in charge show no
interest in oluntarily doing so. There is no pros
pect for a Main Street recoery so long as Wall
Street institutions continue to control the cre
ation and allocation of money.
The Wall Street crash and subsequent deas-
tation sparked a liely debate and led Congress
to pass much heralded, but largely toothless, -
nancial reform legislation. The focus was mainlyon reducing the risk of a future collapse.
Most proposals for Wall Street reform do not
address the foundational issue. Nor do propos-
als for a return to a gold standard or a system of
complementary community currencies.
Photo by Simona Monteleone
http://www.gallup.com/poll/147872/unemployment-stagnant-may.aspxhttp://www.gallup.com/poll/147872/unemployment-stagnant-may.aspxhttp://www.endhomelessness.org/content/article/detail/3656http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=2http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=2http://feedingamerica.org/hunger-in-america/hunger-studies/map-the-meal-gap.aspxhttp://feedingamerica.org/hunger-in-america/hunger-studies/map-the-meal-gap.aspxhttp://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=2http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=2http://www.endhomelessness.org/content/article/detail/3656http://www.gallup.com/poll/147872/unemployment-stagnant-may.aspxhttp://www.gallup.com/poll/147872/unemployment-stagnant-may.aspx -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
The real issue is a failed system created by
a Wall Street-drien social engineering eperi-
ment. Main Street recoery depends on a bot-
tom-to-top restructuring of the institutions that
hold the power to create and allocate the money
on which modern economic life depends.
Our common human future depends on cre-
ating a New Economy that functions in sustain-
able balance with Earths biosphere, meets the
needs of each of Earths nearly 7 billion people,
and gies eery person a oice in making the
critical resource allocations that shape their
lies. See the Appendi Naigating the Transi-
tion to a New Economy.
It will require an accountable, serice-orient-
ed system of money, banking, and nance based
on alues, rules, and institutions ery different
than those currently in place.
The essential rst step is a national conersa-
tion about the institutions of money and nance
centered on a set of questions rarely raised in
the current national conersation:
1. What are our essential priorities for
our nation in the 21st century?
2. What is money? What is wealth? What
is the relationship between the two?
3. What are the proper institutional ar-
rangements for a money system designed to
serve our essential national priorities?
4. How can we replace the institutions of
the failed system we have with institutions
that serve the necessary priorities of a 21st
century nation?
While pundits and politicians may call the pro
posals recommended by this report unrealistic
they are not so for those of us of an older genera-
tion. The proposed system is in fact quite similar
to the sensible and easily understandable system
of predominantly local nancial institutions tha
pulled the United States out of the Great Depres-
sion, nanced the U.S. ictory in WWII, created
the American middle class, and built the worlds
most powerful and enied economy.
America at the beginning of the 21st
century is suffering the aftermath o
its ecesses in the last quarter of the
20th century. We are poorly prepared
to address the challenges and opportunities of a
21st century world that bears only passing re-
semblance to the one the United States domi-
nated for more than a half century. The com-
munications reolution that allows citizens to
communicate instantly and organize globallyis fast eroding the foundations of the modern
forms of imperial global rule at which the United
States ecelled, and the global economys bur-
den on nature already eceeds what the bio-
sphere can sustain.
FNANCE FORA 21ST CENTRY
AMERCA
Editorial cartoon by Tom Cheneyfor the New Yorker
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
The world has changed. We in America, how-
eer, cling desperately to memories of our role
as the worlds last superpower. We continue to
embrace the myth that a growing economy will
ultimately end poerty and heal the planet. We
organize our lies around a crumbling and out-
moded energy intensie infrastructure. We feed
our addiction to leels of wasteful consumption
the biosphere can no longer sustain with import-
ed oil and products we no longer hae the means
to manufacture, nanced by unpayable foreign
debts that mortgage our childrens future. Failing
to create jobs to employ Americans to do useful
work, we absorb the otherwise unemployed in an
outsized military establishment and as prisoners
and guards in oercrowded prisons. We reward
Wall Street speculators with ta breaks and pub-
lic bailouts while inner city communities struggle
to surie at the margins of an economy that of-
fers them no place or future.
We can recoer. We can embrace the impera-
tie to rebuild our infrastructure and economy
as an opportunity to re-establish our role as a
true world leader. We can create a 21st centu-
ry America with an energy efcient 21st century
green infrastructure and manufacturing base
We can renew the American Dream of a ibrant
middle-class nation in which those who are will-
ing to work hard and play by the rules can epect
to hae good jobs at a family wage with benets
food on the table, good schools for their children
a comfortable home, and a secure retirement.
We can create a New Economy that secures
the dream based on the efcient and sustainable
use of our own resources without the burden o
maintaining a massie military establishment
to secure our access to the resources of other
nations. We can simultaneously reduce our ma-
terial consumption and increase our happiness
and quality of life.
Success will require many changes. Among
them is the redesign of the institutional systems
by which money is created and allocated.
What is Money?
Money is essential to modern commerce as a medium of exchange. In earlier days, money took
the form of material objects. As commerce grew, certicates redeemable in gold became popular.
Most contemporary money is no more than a number stored on a computer hard drive and has
value only because people agree to accept it in exchange for things of real value, like their labor.
The fact that most money is nothing but a number is not necessarily a problem, so long as we
are clear that money itself has no intrinsic value and structure the money creation process to fa-
cilitate benecial exchanges that build the real wealth of individuals, families, communities, andnature. The fact that money is only a system of accounting entries becomes a serious problem
when the economy is managed to make the ination of nancial assets its dening purpose and
a few individuals are allowed to game the system to enrich themselves free from the exertions of
contributing to the production of real wealth.
Newly laid-off workers ina Missouri unemployment line
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
MONEYAS A SYSTEM
OF POWER
Most people know that the structure
of political institutions determines
whether political power is con-
centrated in the hands of an elite
ruling class or is decentralized and distributed
through democratic institutions accountable to
the soereign people. There is far less discussion
and recognition of the fact that the structure of
a societys nancial institutions similarly deter-
mines whether economic power is centralized
and concentrated or decentralized and distrib-
uted. Yet the allocation of nancial power large-
ly determines the allocation of political power.
When nancial power is highly concentrated,
the ideal of a one person, one ote democracy is
almost ineitably trumped by a one dollar, one
ote plutocracy.
Most people use money eery day and rare-
ly think to ask: What is money? Where does
it come from? Who decides who gets it and for
what purpose?
Ask an economist What is money? and the
answer will likely be, A medium of echange, a
measure of worth, and a storehouse of alue.
Ask how it is determined who gets it and the
answer will likely be, the market. But gien the
current concentration of wealth in America, the
market seems to be doing a ery bad job of put-
ting the money where its needed.
Rarely, if eer, do we hear mention in the
public discourse that money is simply an ac-
counting entry of no intrinsic alueindeed
no eistenceoutside the human mind. Nor do
we hear mention that the illusion that money
is wealth and that people who make money are
creating wealth allows Wall Street to get away
with operating the worlds largest and most prof-
itable con game.
Phantom Wealth
Phantom wealth is anything that has exchange value, but no intrinsic value. Money
that exists only as a number on a computer hard drive is the prime example. It manifests
in nancial assets that appear or disappear as if by magic as a result of accounting en-
tries, debt pyramids, and the ination of asset bubbles unrelated to the creation of any-
thing of real value or utility. The high-tech-stock and housing bubbles created phantom
wealth in massive amounts.
Wall Street is highly procient at creating phantom wealth. Indeed, it takes pride in its abil-
ity to inate nancial assets without bearing the burden of producing anything of real value.
Real Wealth
Real wealth has intrinsic value, as contrasted to mere exchange value. Life, not money,is the measure of real-wealth value. Examples include land, labor, knowledge, and physical
infrastructure. The most valuable forms of real wealth are beyond price and are unavailable
for market purchase. These include healthy, happy children, loving families, caring commu-
nities, and a beautiful, healthy, natural environment.
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Wall Street has become ery cleer at com-
bining nancial games and creatie accounting
to inate its own nancial assets without the
burden of producing anything of real alue. It
promotes public policies that depress wages to
make money increasingly scarce for the people
who produce real goods and serices. It then
lures the folks who do real work and are strug-
gling to make ends meet into borrowing against
their homes and credit cards, locking them into
eer growing debt with hidden fees and usuri-
ous interest rates. Wall Street institutions thus
acquire an eer growing portion of the money in
circulation for their priate accounts, thereby
accumulating eer growing claims on societys
real goods and serices, and its material assets.In a society in which access to most of the
necessities of daily life depends on access to
money, the money system becomes the equia-
lent of a computers operating system. It deter-
mines how eerything else functions. The insti-
tutions that control the creation and allocation
of money shape the fate of nations, businesses
large and small, and the boom and bust cycles
of economic life. They determine who will lie in
opulence and who will face death by staration
Where money ows, there will be jobs; where it
doesnt ow, jobs will be in short supply and un-
employment will be widespread.
The money system is not a gien. It is a func-
tion of human-created design. It can be designed
to operate as a transparent public utility that
funds productie inestments to the benet of
all and is democratically accountable to the peo-
ple who depend on it to secure their lielihoods
Or it can be designed to facilitate the epropria-
tion of societys real wealth by the systems mostpowerful playersat an unconscionable cost to
people, community, and nature.
The eisting Wall Street-controlled mone
system is a powerful eample of the latter.
Markets Cannot Substitute for Caring
In modern societies, markets and money are important, but neither should rule
our lives.
In the earliest human societies, money was unknown. People organized their lives
around the relationships of family, clan, and tribe. They cared for one another andallocated resources to secure the well-being of all. Resource allocation decisions were
local and based on the needs of the community.
Over several millennia, money gradually became a substitute for mutual car-
ing as the foundation of the social, economic, and political fabric of society. This
process accelerated during the latter half of the 20th century.
In contemporary 21st century westernized societies, most of us now organize
our lives around earning, spending, borrowing, and saving money. Money is our
ticket to food, shelter, transportation, education, recreation, health care, and nearly
every other essential of daily life. This extreme dependence on money has sweep-
ing implications for values and the distribution of power in society.
To restore social health this process must be reversed to reduce our depen-
dence on money in favor of restoring caring relationships in the many critical as-
pects of our lives that best remain outside the market.
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
This is not the rst time wee seen the
money system take down the economy.
The nancial collapse that brought
the Great Depression of the 1930s
was caused by an earlier ersion of much the
same Wall Street ecess that caused the crash
of 2008. The Rooseelt administration replaced
the phantom-wealth Wall Street system of that
day with the real-wealth Main Street money sys-
tem that nanced the United States ictory in
World War II, produced an unprecedented pe-
riod of economic stability and prosperity, made
America the worlds industrial powerhouse, and
created the American middle class.
America prospered. Wall Street, howeer, bri-
dled at the constraints on its power and prots
and mobilized in the 1970s to roll back the re-
forms. Wall Street now refers to nancial deregu-
lation as nancial modernization. In the pursuitof short-term nancial gain, Wall Street interests
adanced a host of policy initiaties that led to the
erosion of the middle class, an etreme concen-
tration of wealth, a costly nancial collapse, high
rates of unemployment, bankruptcy, and housing
foreclosures, accelerating enironmental systems
failure, and the hollowing out of U.S. industrial,
technological, and research capacity. Wall Street
proted all along the way and declared its social
engineering eperiment a great success.Reforms aimed at merely reducing unproduc-
tie Wall Street risk-taking do not address the
fact that we are eperiencing a system failure
like the failure of 1929. Ending the nancial chi-
canery and creating a functional nancial sys-
tem responsie to 21st century reality requires
a system restructuring comparable in scope to
that of the Rooseelt era.
A Well-FunctioningMoney System
A well-functioning money system would direct
money to where it connects underutilized re-
sources with unmet needs to proide jobs for
eeryone seeking employment. In so doing, it
would support a locally rooted New Economy
[See appendi, Naigating the Transition to a
New Economy] that aligns and integrates with
the structure and dynamics of Earths biosphere
and self-organizes toward four system condi-
tions:
1. Ecological Balance
2. Equitable Distribution
3. Living Democracy
4. Financial stability
This money system would:
Make credit readily aailable at faorable rates
in response to local needs and opportunities for
productie inestments that build real commu-
nity assets and enhance community health andhappiness.
Support family-wage jobs with benets that
eliminate the need to borrow to support basic
consumption needs.
Fund needed public inestment in physical
social, and enironmental capital.
Eliminate nancial speculation, usury, and
fraud.
Recirculate money within bioregional econo
mies. Manage the money supply to maintain full em-
ployment with minimal ination.
The current ofcial money system fails on e-
ery count.
THE CASEFOR SYSTEMREDESGN
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
A Proven Model
The system of community banks, mutual sa-
ings and loans, and credit unions put in place as
a result of the Great Depression is a system with
proen capacity to perform the desired func-
tions. It is a model still familiar to Americans
who lied through the 1940s, 50s, and 60s. Its
effectieness is a matter of historical record.
Those years were not good for eeryoneso-
ciety was riddled with discrimination based on
race, age, and gender. The discrimination contin-
ues to this day, with communities of color com-
monly targeted for predatory lending schemes.
The community-based system proposed here is
designed to support full and equal participation
by eeryone. This can be achieed through a
combination of regulation and effectie owner-
ship participation in nancial serices institu-
tions by members of ecluded communities.
Banking laws put in place in response tothe Great Depression strictly limited bank size,
functions, and interest rates. The Glass-Stea-
gall Act epanded the regulatory powers of the
Federal Resere, prohibited banks from trading
in corporate securities to preclude their taking
adantage of insider knowledge gained in their
roles as lenders, and created the Federal Depos-
it Insurance Corporation to guarantee deposits
in federally insured banks.
The Bank Holding Company Act of 1956 fur-
ther rooted the money system in local economies
by prohibiting a bank holding company head
quartered in one state from acquiring a bank in
another state and from engaging in non-banking
actiities or acquiring oting securities of non-
bank companies. These rules maintained loca
market accountability by limiting the concentra-
tion of market power and limited unproductie
risk taking by banks that enjoyed Federal guar-
antees and access to cheap credit from the Fed-
eral Resere.
These restrictions supplemented the stat
laws that generally goerned banks prior to the
1970s, and limited them to doing business with-
in their home state as regulated public utilities
proiding basic banking serices. Some states
outlawed branch banking altogether and limited
each bank to a single physical location.
Traditionally, local nancial institutions made
and held home mortgageswith local saings. Since
they and their depositors bore the risk of default
there was a strong incentie to assure that bor-
rowers were credit worthy and that the mortgagedproperties were sound.
This well-regulated, decentralized bankin
system proides a working model for the system
we need to restore nancial and economic integ-
rity and prosperity.
To better understand the wisdom of the post-
depression banking system, it is helpful to re-
iew where things went wrong oer the last 40
years.
Jimmy Stewart in Its a Wonderful Life,about a small community building and loan that
worked for the good of its depositorsand the town
http://topics.nytimes.com/top/reference/timestopics/subjects/m/mortgages/index.html?scp=8&sq=home%20foreclosures&st=csehttp://topics.nytimes.com/top/reference/timestopics/subjects/m/mortgages/index.html?scp=8&sq=home%20foreclosures&st=csehttp://topics.nytimes.com/top/reference/timestopics/subjects/m/mortgages/index.html?scp=8&sq=home%20foreclosures&st=csehttp://topics.nytimes.com/top/reference/timestopics/subjects/m/mortgages/index.html?scp=8&sq=home%20foreclosures&st=cse -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Erosion of the regulations that secured
the systems integrity began in the
1970s with a Supreme Court decision
that allowed banks to solicit custom-
ers across state lines and to charge whateer in-
terest rates were allowed by the state in which
the bank was physically located. This opened
the way to charging interest rates considered
usurious in the state in which a loan was made.
The Depository Institutions Deregulation and
Monetary Control Act of 1980 abolished caps
on mortgage interest rate charges. The Alterna-
tie Mortgage Transactions Parity Act of 1982
opened the way to the adjustable rates, balloon
payments, and interest-only loans that played a
major role in the 2008 nancial collapse.
The Wall Street-engineered system redesign
shifted the focus of the money/banking/nance
system from inestment in real wealth cre-
ation to a focus on using money to make money
through unproductie speculation, arbitrage,usury, deception, and market manipulation. As
community banks were bought up and consoli-
dated into larger regional and national banks,
banks began to transfer mortgage lending risks
to inestors in bond markets through mecha-
nisms that eliminated the incentie for them to
assure the creditworthiness of borrowers.
The redesign process was drien in part by
the ideology of market fundamentalism, which
claimed, in effect, that anything that makes aprot for Wall Street benets society and should
be legal. By the distorted Wall Street reckon-
ing, any goernment interference reduces public
benet.
The process was also drien by ta policies
that ta capital gains at a lower rate than or-
dinary income. This disparity droe a number
of changes. First, most corporations reduced or
eliminated diidend payments, which are taed
as ordinary income, and self-nanced growth
with retained earnings to inate share price
which produces capital gains. Corporations thus
had less need to borrow.
Furthermore, when corporations did bor-
row, they found it cheaper to borrow from the
bond market than from a bank. This shift cut
sharply into the earnings of Wall Street banks
Yet nancial institutions not subject to banking
rules, such as hedge funds and priate equity
funds, were making eye-popping returns. Con
sequently the banks lobbied to free themseles
from restrictions applied to them, but not to
other nancial institutions they iewed as their
competitors.
Wall Street claims that the re-engineered
nancial system increased nancial efciency
From its perspectie, it was more efcient be-
cause it increased prots and lowered borrowing
costs for Wall Street corporations. But from the
perspectie of public benet, it was highly inef-
cient. The costs of borrowing for small busi
nesses, home buyers, and consumers increased
The systems priorities shifted from funding pro-
ductie inestment to nancing speculationSpeculators proted and major Wall Street play-
ers swelled the ranks of Forbes magazines list
of billionaires. The real economy and the less
wealthy bore the price.
A Bipartisan Project
The dismantling of regulatory safeguards began
with the Democratic Carter administration. TheRepublican Reagan administration droe it for-
ward as a dening ideological mission.
The Democratic Clinton administration later
picked up from Reagan to dismantle the remain-
ing constraints on Wall Street concentration and
WALL STREETTAKEOVER
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Subsidies fora Doomsday Machine
The Wall Street takeoer has created a little-noted
anomaly. Public support and oersight pro-
grams for the banking sector, including deposit
insurance, mortgage guarantees, and liquidity
support, were put in place to support a system
of independent local banks that functioned as awell-regulated public utility to proide essential
nancial serices to local real-wealth economies.
It was a sensible and effectie public-priate
partnership.
Howeer, these once-sensible goernment
programs now guarantee and subsidize loosely
regulated too-big-to-fail priate banks that -
nance speculation, nancial bubbles, predatory
lending, asset stripping, and inestment fraud
actiities that goernment should be regulating
and taing out of eistence. The result is the -
nancial doomsday machine that dries toward
eer more risky and unproductie nancial e-
cessand will continue to do so until either it is
restructured, or goernments nancial capac-
ity is ehausted and the entire nancial system
goes into terminal, unrecoerable collapse.
The Wall Street crash reealed a system-
ic pattern of etreme greed, deception
and disregard for any consequence oth-
er than personal nancial gain. With
the continued absence of adequate regulatory
oersight, the deception and fraud continue at
great cost to hard-working Americans who are
trying to play by the rules.
For eample, there hae been persistent re-
ports of banks foreclosing on properties without
proper documentation. Paul Krugman reportsthat more recently, inestigations by state at-
torneys general hae uncoered a persistent
practice of banks approaching owners of homes
scheduled for foreclosure with bogus offers o
mortgage modication they hae no intention o
actually approing. It is a tactic used to etract
additional payments and fees from the borrow-
ers to drain them dry nancially before ultimate-
ly kicking them out of their homes.
The crash also reealed the etent to whichthe Wall Street system created pererse incen-
ties for top management to make decisions that
generated risk-free gains for themseles by shift-
ing risks to othersincluding their own share
holders. See the inset, Shareholders Beware!
MORALFALRE
Editorial cartoon by Eric and Bill Teitelbaumfor Tribune Media Services
Editorial cartoon by Ingram Pinnfor the Financial Times
http://www.nytimes.com/2011/03/14/opinion/14krugman.html?_r=3&src=ISMR_AP_LO_MST_FBhttp://www.nytimes.com/2011/03/14/opinion/14krugman.html?_r=3&src=ISMR_AP_LO_MST_FB -
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Blaming the Victim
Adding insult to injury, Wall Street interests
hae sponsored well-funded campaigns to con-
ince the public that goernment scal crises
created by the nancial crash, the subsequentbank bailouts, and ta breaks for people with
incomes oer $250,000 are actually due to
greedy teachers, police, reghters, and public
unions rather than greedy bankers.
Bad Science
Wall Streets guiding market fundamentalist
ideology rests on the empirically, logically, and
ethically awed premise that society does best
when each indiidual and enterprise seeks to
maimize nancial return without regard to the
consequences for other people, the health of
society, or the biosphere. This eleates greed
long considered a deadly sin, to the status of a
moral imperatie and legitimates a system that
attracts and promotes to top management po-
sitions sociopathic personalities who feel com-
fortable with the systems pererse moral code The system in turn afrms their psychologica
disability and rewards it as an asset.
The nancial instability, enironmental de
struction, etreme inequality, and political cor-
ruption created by Wall Streets eperiment in
market fundamentalism should hae put this
logical and moral perersion to rest long ago. The
healthy function of society depends on indiidu-
als acting with integrity and accepting responsi
bility for the consequences of their actions. This
is a foundational moral teaching of eery major
faith tradition and is within the means of eery
morally and psychologically mature adult to up-
hold. It is the standard to which we should all be
held, including corporations and their managers
Editorial cartoon by Pat Bagley for the Salt Lake Tribune
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How to Liberate America from Wall Street Rule
A Report from the New Economy Working Group
Flawed Legal Doctrine
In The Failure of Corporate Law, (pp. 73-74) Pro-
fessor Kent Greeneld of Boston College obseres
that the law normalizes, and een defends, cor-
porate law breaking. He summarizes the recom-
mendation of widely quoted legal scholars Fran
Easterbrook and Daniel Fischel that corpora-tions should, with some eceptions, seek to
maimize prots een when they must break the
law to do so . As long as the epected penalties
from illegality are less than the epected prots,
the corporation should act illegally. According
to Professor Greeneld there is not a single con-
temporary eample of a court nding that man-
agers breached their duciary duty by causing
a rm to break the law when it was protable to
do so.
Such pererse legal interpretations afrm the
inclinations of the unscrupulous and gie them
moral and legal coer as they subert justice and
democracy by aoiding prosecution for a negoti-
ated fee and buy legislation to make their crimes
legal. It works well for the ethically challenged
for whom personal prot is the operant ethica
standard. It is obiously a disaster for society.
A pererse legal doctrine may absole indi-
idual corporate managers of legal responsibility
for their actions; it does not absole them from
their personal moral responsibility.
Shareholders Beware!
Corporate CEOs are often criticized for neglecting all interests other than those of
their shareholders. Those were the good old days. Corporate governance expert Robert
A. G. Monks explains how the structure of the incentive programs of top Wall Street bank
managers now leads them to place both shareholders and the public at risk to maximize
their personal nancial gain.
Compensation plans for top corporate managers are designed, in theory, to reward
them for maximizing shareholder returns. To this end, executive bonuses are commonly
tied to achieving a target increase in the percentage return on equity. As noted in a re-port of the federal Financial Crisis Inquiry Commission,
One way a rm can boost its return on equity is to buy back some of its own stock;
this reduces the size of its [equity] capital and means that its earnings get spread over a
smaller base. Another option is to increase its leverage, or borrowing.
Buying back shares reduces the number of shares in the market, thereby increasing
earnings per share and driving up the share price. To maintain its total capital base,
however, the rm needs to increase borrowing, which essentially means trading equity
for debt. The combination increases leverage, i.e., the debt-to-equity ratio, and thereby
increases the rms risk of default if markets turn down.
Pervasive across Wall Street prior to the crash, this pattern of system gaming bytop managers explains why Wall Street rms were so heavily overleveraged and had
no cushion when the market turned down. Some managers also took a hit, but most
walked away with personal fortunes. Shareholders, taxpayers, unemployed workers,
and foreclosed homeowners were left to absorb the losses when the bubble bust.
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The Purpose of Business
From a societal perspectie the primary reason
for any business to eist is to sere its commu-
nity by proiding useful goods and serices and
fullling, liing-wage employment. A fair prot
is a means to nancial iability and a reward for
saing and risk taking. There is, howeer, an important difference
between a fair prot and maimum prot. To
make prot the dening purpose of the enter-
prises is to conert a means to an end.
This distinction is particularly important for
banks and other nancial serices institutions.
Their power to determine who gets access to
credit and who does not is easily abused. Finan-
cial serices are as essential to the health and
well-being of a modern community as is the pro-
ision of water and electricity. It is essential that
they all be managed responsibly in the public
interest.
The ownership structure of nancial insti-
tutions plays a critical role in creating internal
incentie structures that can support either de-
structie or responsible behaior.
Michael Lewis, a former trader at Salomon
Brothers, once a prestigious Wall Street inest-
ment bank, obseres that when Salomon Broth-
ers conerted from a priate partnership into a
public corporation in 1981, the partners made
a quick killing and transferred the ultimate -
nancial risk from themseles to their sharehold-
ers. This inspired a wae of such conersions,
unleashing ecessie risk taking and helped set
the stage for the 2008 nancial crash. Lewis
notes in The Big Short,
No investment bank owned by its employees
would have leveraged itself 35:1, or bought andheld $50 billion in mezzanine CDOs [a high-risk
category of collateralized debt obligation]. I doubt
any partnership would have sought to game
the rating agencies, or leapt into bed with loan
sharks, or even allowed mezzanine CDOs to be
sold to its customers. The short-term expected
gain would not have justied the long-term ex
pected loss. (pp. 258-259)
When institutional structures incentiize im-
moral behaior, they cultiate a culture of ecess
and irresponsibility not just as a norm, but een
an ideal. Many Wall Street employees come to
their jobs with high personal moral standards
but the pressure put on them to set aside their
personal alues by the pererse incenties and
culture of Wall Streets defectie institutional de-
sign is enormous.
Cooperatie or local public ownership makes
a clear link between the rights and power o
ownership and the broader public interest. Loca
Dilemma of the Aspiring
Philanthropist
Many wealthy individuals are
donating substantial portions of their
fortunes to organizations working to
advance economic justice and envi-
ronmental sustainability. Few are
aware that the problems their philan-
thropy addresses are caused by the
same institutions through which they
build their fortunes.
Some young people take this as a
model and choose conventional Wall
Street careers as a way to build a per-
sonal fortune for the purpose of later
funding benecial philanthropies.
They might consider instead devoting
their careers to developing and serv-
ing ethical businesses that create real
value and contribute to eliminating
the systemic causes of injustice and
environmental destruction.
http://www.timesonline.co.uk/tol/news/world/article7069617.ecehttp://www.timesonline.co.uk/tol/news/world/article7069617.ecehttp://www.timesonline.co.uk/tol/news/world/article7069617.ecehttp://www.timesonline.co.uk/tol/news/world/article7069617.ece -
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businesses owned by indiiduals who recognize
their responsibility to the community in which
they lie and work also make that connection.
The link is broken, howeer, when ownership
shares are publicly traded in distant nancial
markets and subject to speculation by owners
who hae no personal connection to the enter-
prise or to the community it seres.
Our common future depends on re-
designing the money/banking sys-
tem to:
1. Shift the locus of control over money
creation and allocation from Wall Street to
Main Street.
2. Assure public accountability and instill
a culture of service and moral responsibility.3. Direct the ow of money to produc-
tive real-wealth Main Street investments
that create family wage jobs and produce es-
sential goods and services in response to the
self-dened needs of people and community.
4. Harness the Federal Reserves money
creation powers to nance investment in es-
sential public goods rather than to fuel Wall
Street nancial bubbles.
The measures proposed here will likely draw
criticism from market fundamentalists, who e-
press alarm at any restraint on Wall Street pow-
er, but they will in fact sere to restore respon-
sible market discipline.
Basic Market Principles
Wall Street presents itself as the champion o
democracy and market capitalism. It in fact rep-
resents a concentration of economic and politi-
cal power that is both anti-democratic and anti-
market. The antidote for Wall Streets distorted
alues and abuse of power is a system thataligns with four basic market principles.
1. SizeIt is common sense that no bank should be too
big to fail. More to the point, no bank should be
too big to be held accountable by the place-based
community it seres. The market ideal is a con-
dition of perfect competition among numerous
small enterprises that function within a frame-
work of community alues and compete for con-
sumer faor and community support based on
price and serice. Competition among numerous
community-based nancial institutions offering
essential banking serices would subject them
all to positie market discipline and eliminate
the risk that the failure of an indiidual insti-
tution would seriously damage een the loca
economy, let alone the entire global economy.
2. OwnershipWhen ownership is rooted in the community o
place in which a local nancial institution is lo-
cated, owners hae a natural stake in assuring
that management decisions reect the nancial
social, and enironmental interests of the com
munity rather than the nancial interests o
anonymous absentee owners. There are many
appropriate models, as discussed below.
3. Transparency
A foundational principle of market economicsspecies that markets work best when both buy-
er and seller act with full information. Democ-
racy also requires that decisions bearing on the
public interest be open to public iew and that
MONEY SYSTEMDESGN
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oters be fully and accurately informed. Gien
that the ow of money determines the ow of
power in modern society, democracy requires
that the nancial system be transparent at eery
leel from the Federal Resere to local commu-
nity banks and credit unions. Secrecy creates a
barrier to essential public scrutiny and inites
corruption and insider dealing contrary to the
public interest.
4. RegulationMarkets need rules to maintain the conditions
of efcient market function. No rm can be al-
lowed to acquire monopoly power. Full costs
must be internalized in market prices. Deci-
sion makers must be legally accountable for
the harms they do. Decision making bearing on
the public interest must be open to public scru-
tiny. Setting and enforcing appropriate rulesthrough transparent and publicly accountable
political processes is an essential goernmental
function.
These are all well-tested, common-sense
principles much like those implemented in the
design of the nancial system that once made
the U.S. economy the eny of the world. As a
general rule, the more the power to create mon-
ey is decentralized, equitably distributed, trans-
parent, focused on productie inestment, and
subject to clear and appropriate market rules,
the greater the leel of public accountability
the less the potential for abuse, and the less the
need for goernment oersight to assure system
stability and integrity.
Money Creationin the Current System
Under our current money system, the Federa
Resere is responsible for managing the money
supply and has a ariety of tools for epand-
ing and contracting it. The tool of immediate
releance to this discussion is the Feds ability
to create new money with a simple accounting
entry and then put that money into circulation
by etending credit to member banks or buyingtreasury bonds or other public or priate securi-
ties. This money then becomes aailable to the
banking system to lend to borrowers.
By the rules of fractional resere banking, a
bank must maintain an amount in resere equa
to a set percentage of its deposits. Assuming a
10 percent resere requirement, the new money
introduced into the system by the Federal Re-
sere allows the banking system to epand the
Money Without Growth
Critics of the bank-credit money system commonly observe that the demand to repay
newly created bank-credit money with interest creates an articial imperative for the
economy to grow simply to generate demand for new debt to create the money required
to pay the interest due on prior debt and prevent systemic default. This is an accurate
criticism of a Wall Street money system controlled by a privileged class of nanciers who
in effect rent the money supply to the rest of the society.
The problem, however, is not inherent in interest. It is inherent in the division of
society between a nancial oligarchy that lives from returns on money and those whomust borrow to make ends meet. A system of cooperatively owned nancial institutions
that allow members to rotate between borrower and lender roles and to essentially pay
interest to themselves does not create an aggregate growth imperative. Nor does it lead
to an inevitable concentration of wealth.
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money supply by 10 times as credit ows from
one bank as a loan to another as a deposit. The
reality is more comple, but for current purpos-
es we will assume that each new dollar intro-duced into the banking system by the Fed een-
tually multiplies to $10 of new credit circulating
through the economy.
This arrangement can work to the benet of
the society; if the banking system directs the
money it creates into the real-wealth economy to
fund productie inestment and echange.
When, howeer, this power is monopolized by
a nancial oligarchy solely for self-enrichment,
it becomes a form of theft, the ultimate instru-ment of tyranny, and an intolerable and unsus-
tainable burden on society.
In her forthcoming book tentatiely titled Pri-
vate Ownership for the Common Good, Marjo-
rie Kelly, author ofThe Divine Right of Capital,
makes a crucial distinction between generatie
and etractie economic systems and inest-
ments. A Main Street banking system that seres
and is accountable to a community of place for
funding productie inestment is an eample o
a generatie system. A Wall Street banking sys-
tem controlled by an unaccountable nancia
oligarchy deoted solely to maimizing nancia
returns for its eclusie benet is an eample
of an etractie system. The purpose of the fol-
lowing agenda is to replace the etractie Wal
Street money system we hae with the genera-
tie Main Street money system on which a pros-
perous national and human future depend.
Most nancial reform proposals fo-
cus on regulatory measures in-
tended to limit the damage causedby the current system. Such mea-
sures are necessary, but inadequate.
To create economic health, the banking sys
tem must be restructured to direct the focus
away from etractie nancethe predatory e-
propriation of real wealthto generatie nance
that epands the pie of real wealth to the ben-
et of all within the limits of healthy biosystem
function.
The desired transition will require a sustained and orderly process of rebuilding the
money/banking system from the bottom up as
a well-regulated community-accountable pub-
lic utility. Necessary measures include restor-
ing ta and regulatory rules that 1) restrict bank
AGENDA FORA MAN STREETMONEY SYSTEMFarmers Market, Madison, Wisconsin.
Photo by Mingfong Jan
http://www.yesmagazine.org/issues/art-and-community/book-review-the-divine-right-of-capital-by-marjorie-kellyhttp://www.yesmagazine.org/issues/art-and-community/book-review-the-divine-right-of-capital-by-marjorie-kelly -
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size, 2) limit public guarantees and subsidies to
nancial institutions engaged eclusiely in per-
forming basic banking functions, and 3) render
etractie nance illegal and/or unprotable.
The following are some specic proposals
suggestie of the possibilities, working up from
the community to the global leel.
Rebuild a National System ofCommunity-Based and Accountable
Financial nstitutions
The well-regulated system of locally rooted and
accountable nancial institutions that we had
prior to the 1970s proides a reasonable rst ap-
proimation of the system we must now create.Local nancial institutions proide the commu-
nities they sere with a capacity to mobilize oth-
erwise idle productie resources in response to
local needs and opportunities. Fortunately, we
still hae remnants of this system on which to
rebuild.
The New Rules Project reports that the Unit-
ed States still has about 8,000 credit unions and
more than 7,600 community banks ($1 billion in
assets or less). Partly as a result of the successof the Moe Your Money campaign, which en-
courages people to transfer their bank accounts
to local nancial institutions, credit unions are
thriing and eperiencing a major epansion in
deposits and lending.
Local nancial institutions can be just as cus-
tomer unfriendly, discriminatory, and predatory
as any Wall Street bank, but they are more likely
to dene themseles as serice proiders to the
communities in which they are located. They tooneed regulations that discourage socially dam-
aging behaior. A select few are eperimenting
with innoatie ownership structures that sup-
port a strong community-serice, social-mission
orientation. These include a number of inspiring
eamples of institutions committed to sering
communities of color and other groups that the
banking industry has historically undersered
or targeted for eploitation.
As a group, these smaller community-based
nancial institutions proide a foundation
on which to rebuild a system of community-
oriented, real-wealth nancial serices institu-
tions that operate within a strong regulatory
framework as transparent public utilities.
There are opportunities to achiee real econ-
omies of scale and the benets of risk diersi-
cation without absorbing or driing out competi-
tors or losing accountability to the communities
sered. We might begin with the rule of thumb
that for-prot community banks with conen
tional priate ownership should be limited to $1
billion in assets.
A larger limit may be appropriate for banks with cooperatie ownership structuresfor e
ample credit unions and mutual saings and
loansthat rmly link them to the interests
of the places in which they do business. There
might also be eceptions for for-prot nancia
institutions owned by nonprot foundations that
reinest prots in the community either through
epanded lending or grants to community orga-
nizations. The inset Financial Innoators for a
21st Century America describes some promis-ing eperiments.
The nancial innoations that will build
21st Century America are found on Main Street
not Wall Street, and center on creating a sys-
tem of Community Deelopment Financial In-
stitutions (CDFIs), also known as Community
Deelopment Banks, that gie priority to build-
ing and sharing community wealth. These are
priately held, federally insured for-prot banks
and thrift institutions supported by socially mo-tiated inestors who beliee that nancial insti-
tutions should put community serice ahead o
maimizing prots, and who accept a less than
market return for the satisfaction of putting
their personal and institutional wealth to work
1
http://moveyourmoneyproject.org/http://www.newrules.org/banking/news/credit-unions-hang-tough-see-surge-depositshttp://www.newrules.org/banking/news/credit-unions-hang-tough-see-surge-depositshttp://www.cdbanks.org/http://www.cdbanks.org/http://www.cdbanks.org/http://www.cdbanks.org/http://www.newrules.org/banking/news/credit-unions-hang-tough-see-surge-depositshttp://www.newrules.org/banking/news/credit-unions-hang-tough-see-surge-depositshttp://moveyourmoneyproject.org/ -
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building a future they can be proud to leae to
their children.
CDFIs nance affordable housing, small busi-
nesses, community facilities, consumers, and
mied use and commercial real estate in low in-
come communities. They also support the deel-
opment and application of green technologies.
The basic standards of integrity and commu-
nity serice to which CDFIs are held are properly
applied to all nancial serices institutions in a
moral economy, including those sering more
afuent communities.
According to the Social Inestment Forum,
the combined assets of community deelopment
banks, community deelopment credit unions,
community deelopment loan funds, and com-
munity deelopment enture capital funds in-
creased from $5 billion in assets in 1999 to $41.7
billion in 2010.The Forum calls community in-
estingthe unsung hero in thousands of towns
and neighborhoods across America, where it qui-
etly has added jobs, local serices, and support
for small businesses where traditional lenders
hae been unable or unwilling to do so.
The following actions are recommended at the
federal leel to break up concentrations of nan-
cial power and restore and support a system of
Main Street nancial institutions as the founda-
tion of Americas 21st Century Banking System:
Implement strict anti-trust enforcement to
restore market competition and assure that
no bank is too big to fail or to be held ac-
countable to market forces and democratic
public oversight.
Scale bank taxes, fees, equity and reserve
requirements, and all public subsidies and
guarantees for the banking sector to favorsmaller community banks over larger Wall
Street banks. Introduce a graduated nancial
assets tax on banks with more than $10 bil-
lion in assets to motivate the voluntary
breakup of large banks and the deconcentra-
tion of the banking system.
Strengthen and expand the community re-
investment act that requires banks to meet
a minimum standard for reinvesting in the
communities in which they are located, rec-
ognizing that this should be the primary pur-
pose of any state or federally chartered bank
Create a Cooperative Community Bank-
ing Institute to provide technical support to
groups interested in establishing member-
owned nancial services and to manage the
restructuring of banks closed by the FDIC to
break them up and convert them to coopera-
tive community nancial institutions. Give
particular priority to previously underserved
communities.
Instruct the FDIC that when it takes over a
failed bank, rather than facilitating the merg-
er into a larger competitor bank, it will turn
the failed bank over to the Cooperative Com-
munity Banking Institute to restructure and
reorganize.
Implement an updated version of Glass-
Steagall to prohibit banks from trading in,
creating a market for, brokering, or nanc-ing the purchase of securities, and holding
securities for their own account other than
federally guaranteed U.S. Treasuries.
Close the tax loopholes that allow prot-
able Wall Street banks to avoid U.S. taxes.
All banks that operate in the United States
should be chartered and pay taxes in the
United States on all prots properly attribut-
able to U.S. operations.
http://ussif.org/http://ussif.org/resources/research/documents/2010TrendsES.pdfhttp://ussif.org/resources/research/documents/2010TrendsES.pdfhttp://ussif.org/news/releases/pressrelease.cfm?id=173http://ussif.org/news/releases/pressrelease.cfm?id=173http://ussif.org/resources/research/documents/2010TrendsES.pdfhttp://ussif.org/resources/research/documents/2010TrendsES.pdfhttp://ussif.org/ -
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Main Street Financial Innovators
We need to look to Main Street for examples of the kinds of nancial innovation required to secure Americas
future. Here are four examples of community banks that are pioneering unconventional community service mod-
els of ownership and governance.
The Bremer Bank, featured in David Brancaccios PBS documentary Fixing the Future, is owned 90 per-
cent by a nonprot foundation that returns all prots to the community. The banks employees own the other 10
percent. The Bremer Bank operates in Minnesota, North Dakota, and Wisconsin, manages $8 billion in assets,
and specializes in serving the nancial needs of local farms and businesses.
One PacicCoast Bankwas founded asOneCalifornia Bankto serve low-income communities. Financier Tom
Steyer and his wife, Kat Taylor, made an initial philanthropic investment of $22.5 million to create the nonprot
One PacicCoast Foundation. The foundation maintains control of the banks mission focus as the legal owner,
receives all nancial benets, and engages in charitable and educational grant making in support of the banks
social goals. In 2010, OneCalifornia Bank acquired ShoreBank Pacic, which specialized in providing loans for
local businesses engaged in the restoration and sustainable management of environmental resources. The com-
bined banks now operate as One PacicCoast Bank.
Southern Bancorp, with over a billion dollars in assets, is one of Americas largest and most protable devel-opment banks. It is a for-prot bank, but with unusual restrictions on ownership participation. Most of itsshare-
holdersare foundations and corporations that invested with an expectation of social rather than nancial returns;
most of them have no rights to receive dividends, share in prots, s